Gold Outlook 2014: Look Out Below!

Gold, gold ETFs and gold miners will only face stronger headwinds in the coming year

To say 2013 was a bad year for gold would be an understatement. Assuming no significant changes unfurl over the course of the last three weeks of the year — and it doesn’t like any such changes are in the cards — the SPDR Gold Shares (GLD) exchange-traded fund is going to end the year with a loss of right around 26%.

Aside from being painfully large, this will be the first yearly loss that gold has suffered in 12 years.

It’s an even worse showing for gold mining stocks. Barrick Gold (ABX) is in the hole by 53%. Newmont Mining (NEM) shares are down 49% year-to-date. The Market Vectors Gold Miners ETF (GDX) has lost 54% of its value year-to-date.

What gives? And more than that, what does the future hold for gold and gold miners after a miserable 2013?

2013: An Ugly Year For Gold

You have to give credit where it’s due … gold had a pretty good run, keeping investors on the hook long enough to drive the commodity up 133% between late 2008 and late 2012. The Fed was stimulating like crazy during that time, flooding the economy with cheap dollars throughout that span, which inevitably was supposed to lead to rampant inflation.

After four years, though, it became clear the inflation explosion just wasn’t going to happen. All it took for already-frustrated gold bugs to completely reverse course was April’s whisper of a slowdown in China followed by the mere mention of the word “taper” in May, and that was it — gold hasn’t been the same since.

Image created using TradeStation 2000i

Of course, it’s not as if a lack of inflation is the only reason the commodity finally hit a wall this year. Interest rates — the 10-Year Treasury yield, for example — are on the rise in more than a superficial way. And although the U.S. dollar seems to have slowed downs its gain (a rising greenback pushes the price of gold lower), it’s not like the sawbuck is falling back into a funk now.

Image created using TradeStation 2000i

Interest rates and currency-exchange rates are relatively arbitrary, though. The real proof of the pudding is in what traders do with their money. So, what are gold’s usual buyers and sellers doing with their investment dollars?